Is a Self-Managed Superannuation Fund (SMSF) Taxed in the US?

How is a Self-Managed Superannuation Fund Taxed in US?: When it comes to reporting foreign pension in the United States for US tax and IRSpurposes, it gets very complicated. That is because most foreign pensions do not qualify as exempt under 401/402(a) and are therefore subject to a potential402(b)scenario.

Complicating the matter even further is the ambiguity of reporting foreign pension plans on form 3520-A (it is well-established that foreign pensions are reportable on the FBAR and Form 8938).

With the Australian Self-Managed Superannuation Fund there are a few key issues:

Form 3520-A Requirement

Impact of HCE rules

Rev Proc 2020-17

Taxation rules

Form 3520-A & Self-Managed Superannuation Fund (SMSF)

Form 3520-A is used to report foreign trusts that have at least one US owner. In breaking down that definition, the first issues whether a foreign pension is considered a foreign trust.

Is it a SMSF a Foreign Trust?

By definition, an SMSF would be, because the employer would be the trustor, the administrator would be the trustee, and the employees are the beneficiaries.

When it comes to a Non-SMSF Superannuation, a Taxpayer can take the position that the 3520-A is not required, because the Superannuation is an employment trust (even if non-exempt under 402(b).

And, because the employer is the Trustor of the trust, the 3rd party administrator is the trustee, and the employee is the beneficiary – there is no employee who is a per se owner of the trust.

While the employee technically “owns” his or her share of their earnings in the trust, taking the position that accrued benefits in an employment trust imputes ownership of the trust for 3520-A purposes, to the employee may be a stretch.

*If the Employee contributes more than 50%, it may transmute into a grantor trust, with the employee owning a portion subject to 3520-reporting.

SMSF U.S. Tax Treatment

With the self-managed superannuation fund, it can get more complicated.

With an SMSF the fund is “self-managed.” The mere fact that it is self-managed does not mean that the employee “owns” the fund. Rather, it means the employee/other qualified members serve as the trustee of the fund (or via a corporate trustee).

Thus, just because a U.S. person employee has their own SMSF would not per se make it reportable on Form 3520-A as an “owner of the foreign trust.”

Rather, the main complication becomes when the SMSF involves a Self-employed person.

Under that circumstance, the employee may be considered the owner of the trust, since the U.S. person owns a stake in the company.

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Recent Golding & Golding Case Highlights

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